Globalization and Income Convergence

Kaitlyn Wolf and Andrew Young (a.t.young@ttu.edu)
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Kaitlyn Wolf: West Virginia University, College of Business and Economics

No 14-07, Working Papers from Department of Economics, West Virginia University

Abstract: The income convergence literature suggests that poor countries can catch-up to rich ones conditional on sharing certain characteristics with rich countries. Good institutions such as strong property rights and rule-of-law are key amongst those characteristics. From a policy perspective this is disheartening because economists have little understanding of how to transplant those institutions to developing countries. Worse, good informal institutions seem to be a necessary condition for formal institutions to "stick". However, to the extent that good institutions can arise as a "spontaneous order" from individuals interacting with one another, allowing for an "open society" may be an effective development policy. To evaluate this proposition we explore whether or not increased globalization fosters income convergence. Based on a panel of up to 184 countries covering the years 1970 to 2009 we conclude that it does. In particular, the social dimension (as opposed to the economic or political dimensions) of globalization is robustly related to income convergence.

Keywords: globalization; institutions; income convergence (search for similar items in EconPapers)
JEL-codes: E02 O11 O43 O47 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014-01
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Citations: View citations in EconPapers (1)

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